Auto Finance

More Questions than Answers as CFPB Gets Set to Go Live

July 5, 2011
• by Tom Hudson

As we approach the one-year anniversary of the federal law that established the Consumer Financial Protection Bureau, it’s probably worth recapping the CFPB-related events of the last several months in order to get some idea of how our federal dollars are being spent protecting consumers’ financial interests.

Although it is not scheduled to formally assume any regulatory authority until July 21, 2011, the CFPB has launched its Website, www.consumerfinance.gov. There you’ll find a video that explains the causes of the financial crisis and how the agency will be a “cop on the beat” to protect consumers. The site also provides links to the CFPB’s blog and social media accounts.

As of this writing, the CFPB is still without a director. President Obama hasn’t named anyone yet, and rumors are flying about a possible recess appointment of the agency’s interim director, professor Elizabeth Warren. A nomination in July would leave very little time for a Senate confirmation of the selection before the bureau officially assumes its duties. Despite the lack of a director, the CFPB, its interim director and her team leaders are moving fast to get the agency ready for its July 21 deadline. Some think it’s too fast. And some think there’s too much power in the hands of the director.

There are Republican proposals to place the CFPB in Congressional hands by moving the bureau to the Treasury Department and eliminating its status as an independent entity under the Federal Reserve Board. They also want to restructure the bureau’s leadership as five commissioners serving staggered terms, with no more than three seats per political party. This isn’t a radical approach — it’s how the Federal Trade Commission and the Securities and Exchange Commission are set up.

Other measures to reduce the bureau’s power and independence also have been introduced. Whether the current Republican efforts on the hill will go anywhere is anybody’s guess.

Until such time as Warren is replaced, if at all, she will serve as the credit czar and remain the “go-to” person for the CFPB. On March 16, she testified before the House Subcommittee on Financial Institutions and Consumer Credit. She discounted a rules-based approach to financial services oversight, claiming that too many rules bog down the industry and put smaller competitors in the financial products marketplace at a competitive disadvantage.

“A simple, straightforward, and consistent presentation of a credit agreement is the best way to level the playing field between consumers and lenders — and among different types of lenders,” she said, in part.

Does this mean we might see an auto financing contract that can fit on a postcard? Probably not. But it may lead to abbreviated retail installment contracts for car dealers. Warren spoke of revising or eliminating outdated regulations and disclosures that burden lenders and obscure real credit terms.

So far, the bureau’s staff consists of several hundred folks, most of them lawyers. And whoever is doing the hiring is doing a pretty fair job so far. With the auto sales, finance and lease industries wary that the bureau would be staffed by consumer advocate-type zealots with little experience, the appointments of Leonard Chanin as rule-writer in chief, and of Peggy Twohig as chief-in-charge of non-depository institutions (sales finance companies and dealers) caused folks to dial back the panic meter a couple of notches. Both are regulatory veterans, Chanin with the FRB and Twohig with the FTC.

We’ve also learned that Rick Hackett has been tapped to oversee the installment credit business (that includes dealer financing), and that’s good news. He is a veteran, highly regarded consumer credit lawyer who has done credit compliance work for many institutions and, in doing so, has developed a good sense of the businesses he has assisted.

You can tell we think a lot of Rick, but make no mistake. He, like Chanin and Twohig, will be dedicated to the bureau’s mission and won’t be any sort of pushover.

So, those are some of the highlights from the CFPB’s first months. The events of the next few months will likely prove pivotal, so stay tuned!

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